1) Nomad Company sells camera bags. The company purchases the bags from its supp

Question

1) Nomad Company sells camera bags. The company purchases the bags from its supplier for $12 a bag and sells them to electronics stores for $25 a bag. Nomad’s fixed costs are $39,000. What is Nomad’s breakeven point in sales dollars?

2) Saira, Inc. is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Saira will break even at this level of sales, what are the fixed costs?

3) Cross Creek Company sells concrete culverts. Currently, the company’s sales revenue is $900,000, variable costs total $450,000, and fixed costs total $300,000. If Cross Creek’s controller has calculated the company’s breakeven point to be $597,000, what is the company’s margin of safety?

Explanation / Answer

1. Contribution=$25-$12=$13

Break even in units=$39,000/$13=3,000

Nomad’s breakeven point in sales dollars=3,000*$25=$75,000

2.

Breakeven sales=800,000*$1.5=$1,200,000

Breakeven sales=Fixed cost/Contribution Margin ratio

so Fixed cost=$1,200,000*20%=$240,000

3.

Contribution Margin ratio=($900,000-$450,000)*100/$900,000=50%

the company’s margin of safety=$900,000-$597,000= $303,000

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